Defense Industry Consolidation in the USA

October 2/15: Defense Department officials have warned against continued consolidation in the US defense industry, with DefSec Carter keen to assert that the clearance of the $9 billion Sikorsky acquisition by Lockheed Martin should not be the start of an emerging trend. Aside from reduced competitive pressure, a smaller number of defense prime contractors could drive up prices and down performance; a view somewhat contested by industry players.

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The US GAO’s 2008 Assessments of Selected Weapon Programs is proving to have a longer tail than usual. Booz Allen Hamilton is a strategic/ I.T/ program assistance consultancy with strong representation in the government and defense sectors. This May Day, we refer readers to the recent Washington Post article “One-Stop Defense Shopping,” wherein Booz Allen Hamilton VPs Dov S. Zakheim and Ronald T. Kadish discuss the state of competition in the American defense industry, and some of its consequences:

“The GAO report lays bare a festering problem in our nation’s military procurement system: Competition barely exists in the defense industry and is growing weaker by the day.

It was a different story just two decades ago. In the 1980s, 20 or more prime contractors competed for most defense contracts. Today, the Pentagon relies primarily on six main contractors to build our nation’s aircraft, missiles, ships and other weapons systems. It is a system that largely forgoes competition on price, delivery and performance and replaces it with a kind of “design bureau” competition, similar to what the Soviet Union used — hardly a recipe for success…”

America is certainly not the only country facing these pressures: Britain is even farther down this road, and Europe is aggressively moving to restructure its own industry into a very few global competitors. Ultimately, the policy implications described here will be played out on a near-global basis, with the possible exception of China.

Still ongoing in 2015…

October 2/15: Defense Department officials have warned against continued consolidation in the US defense industry, with DefSec Carter keen to assert that the clearance of the $9 billion Sikorsky acquisition by Lockheed Martin should not be the start of an emerging trend. Aside from reduced competitive pressure, a smaller number of defense prime contractors could drive up prices and down performance; a view somewhat contested by industry players.